Professional Services Firm / Agency: Startup 5-Year Financial Model

I have some new revenue logic that fits perfectly with this kind of a professional services business model. Think about any organization that has professionals working for it and bills out time to clients at some hourly rate. CPA and Law firms are a perfect example, but also marketing firms fit neatly. This also applies to a consulting firm of nearly any kind.


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The build goes out for up to 5 years. The goal is to try and model how much billable hours a firm could have, how much it will pay its' professionals, and how much is left over. This is done with a lot of precision and robust formulas.

The user will have inputs for up to 3 different types of professionals, mainly separated by how much they bill out per hour on average.

The logic is designed to account for the average tenure of a given professional by type and the number of months it takes for a new hire to reach their quota. This all works through time as new hires come on, old ones leave, and billing amounts change. To do this, 3 matrix tabs were made to track the number of months a given monthly cohort has been active and the average number of hires expected to leave the firm in a given month.

You can also define the percentage of new hires that fall into each type of category (low, mid, high). Based on all of these different assumptions, the monthly and annual detail tabs will populate and the user will be able to see the total billings, billable hours, professional headcount by type, and avg. hours billed over time.

There are assumptions for potential debt through traditional financing as well as equity contributions from investors and a filler for any remaining cash needed from owners.

The model is designed to handle accounting for a professional services organization that has already started and has a current headcount of professionals. The design will fit the current counts and move forward from there based on the assumptions entered. If you are just starting up and have 0 professionals, that will work too.

Accounting for fixed and variable costs has been done in the standard way. The user can pick the month given fixed costs begins and the monthly amount over each year in the future. The same goes for variables costs. Variable costs were done in a way where the user defines the monthly cost per professional and that multiplies through based on the professional headcount over time.

To show clean summaries of the results, there is a Distribution tab to see IRR and cash flow / DCF and NPV for the project, investor pool, and owner pool. ROI is also shown and total cash returned over the period for the project, investor, and owner pools.

There is an Executive Summary tab to see high-level financial performance. This includes revenues, COGS, fixed / variable costs, EBITDA, and cash flow after all other items. It removes much of the extra detail seen in the monthly/annual detail tabs and pulls out the most important line items.

Note, the COGS (cost of goods sold) in this case would be the earnings paid to professionals after the firm takes a defined % share.

I am not a financial advisor and this is not financial advice. Use the template with your own assumptions at your own risk.